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On Mcoin, Bitcoin and points of investment

MCOIN is still very much a talking point, especially in Penang. To the uninitiated, it is the “digital currency” of MBI International, a company involved in a myriad of activities and hogging the limelight for the wrong reasons after being flagged as one of the entities not recognised by Bank Negara.

Since Bank Negara’s warning two weeks ago, the company’s accounts amounting to some RM177mil have been frozen. The cash in question is significantly much more than the previous major scheme that came under probe by Bank Negara and other agencies.

In 2012, the authorities froze RM99.8mil in bank accounts of Genneva Malaysia Sdn Bhd. Also, 126kg of gold were carted away from the office. It has been five years and the investors, most of them ordinary wage earners looking to earn an extra buck from their savings, have yet to receive their money.

One of the reasons is likely that the liabilities of Genneva Malaysia are 10 times more than the assets recovered.

MBI International, which is primarily based in Penang, has a network stretching up to China. According to reports, it has come under pressure from some investors wanting a return of their money.

However, outlets in M Mall in Penang are still accepting Mcoin for the purchase of goods and services. There is no rush to cash out, as one would have expected, considering that the accounts of MBI International have been frozen.

Nonetheless, it is only a matter of time before the value of Mcoin and the ability of MBI International to return money to its investors is put to the test.

Based on previous events that led to companies having their bank accounts seized by the central bank, it would be a long time before the investors are able to retrieve their cash.

There are some who are completely ignorant of the new global order of currencies and money, making comparisons between Mcoin and the rise of cryptocurrencies such as Bitcoin.

If anybody is harbouring any hope that the value of Mcoin would rise just like the phenomenal bull run seen in the world of cryptocurrency, they had better stop dreaming.

There are fundamental differences between instruments such as Mcoin, which in essence is a token to redeem goods at a few outlets, compared to cryptocurrency that is fast gaining traction as an alternative currency around the world.

Mcoin has unlimited supply and its value is controlled by one entity. How the value is derived is not clear.

In contrast, cryptocurrencies such as Bitcoin have a limited supply. And the supply is decentralised – meaning no one entity controls the supply. There is a ledger that tracks all transactions and measures the amount of supply and how much more is available.

The objective of the people behind cryptocurrency is to come up with a currency that is not controlled by central banks. New supply can only come about after hours of a process called `mining’.

The mining process is a complicated one. It involves many hours of programming and utilising high computing skills to predict the next chain in the block of coins. The data used is based on historical transactions and it is said that one block is created every 10 minutes.

Only one successful miner is rewarded with a slice of the cryptocurrency at any one time. He or she can then transact it in an exchange.

The first cryptocurrency is Bitcoin, which began operating in January 2009.

Bitcoin is only one of the hundreds of cryptocurrencies in existence. There are many more new coins coming up, improving on the technology pioneered by Satoshi Nakamoto.

Nobody knows who is Satoshi or if he really exists. However, the legend is that he wanted a currency that is not under the control of central banks, hence the birth of Bitcoin, the first decentralised currency.

The market capitalisation of all cryptocurrency was US$27bil as of April this year – four times more than what the value was in January this year.

Much of the rise is attributed to the volatile US dollar. A few years ago, if anybody had said that cryptocurrency such as Bitcoin would be used to hedge against the US dollar, many would have laughed it off.

Today, however, it is the reality.

The cryptocurrency fever has picked up in China, which has the largest number of “miners” in the world. One reason is said to be because some see it as one way to take capital out of the country.

In India, when the government decided to demonetise the popular 1,000 and 500 rupee notes, there was a 50% increase in the trading of Bitcoin, as people saw it as one way to legalise their black money.

Bitcoin soared past the US$2,500 mark last week, which is a four-fold increase since January this year. There are many other cryptocurrencies, such as Ethereum, that are all seeing a bull run.

The world of cryptocurrency has taken a life of its own. Computer geeks with “blockchain” expertise, the technology that drives the decentralisation settlements of cryptocurrency, are commanding more than US$250,000 per annum.

It is said to be more than what a consultant or a software engineer can earn.

Those who have put their money into cryptocurrency would be laughing all the way to the bank now. But dynamics and fundamentals are complicated. The strength of the cryptocurrency is not based on historical numbers. It does not have an asset backing it.

It is based on future expectations of what the designer of the cryptocurrency offers. It is a complicated investment not meant for the unsophisticated investor.

Only fools will go for investment schemes that are unregulated and offer promises of returns that are unsustainable. They will lose all the time.

The smart investor will rely on traditional stocks and shares with earnings that are visible. Those who are not greedy will surely gain.

The super-smart geeks are banking on the world of cryptocurrency that has a volatile history. Their fate is uncertain.